In Comprehensive Neurosurgical, P.C. v. The Valley Hospital (A-52-22/087469) (Decided April 22, 2024), the Supreme Court of New Jersey vacated a $24,300,000 jury verdict in favor of a group of eleven neurosurgeons who alleged that Valley Hospital did not deal with them fairly or act in good faith when it granted another group of neurosurgeons exclusive privileges. According to the Court, the jury was not correctly instructed on the plaintiffs’ good faith and fair dealing claim, that Valley’s attorney-client privileged emails were improperly admitted into evidence, and that the plaintiffs’ attorney made improper remarks on summation.
Facts of Comprehensive Neurosurgical, P.C. v. The Valley Hospital
A group of eleven neurosurgeons and their practice group, Comprehensive Neurosurgical, P.C., d/b/a/ North Jersey Brain & Spine Center (collectively, plaintiffs), joined Valley Hospital in 2003. In addition to holding core hospital and admitting privileges, plaintiffs were given the right to “cover” the Emergency Room (ER) by treating “unassigned” ER patients who arrive to the ER on an emergency basis and are not any other neurosurgeon’s established patient. Plaintiffs’ practice at Valley primarily derived from treating those “unassigned” ER patients. Plaintiffs also received “specialized privileges” authorizing them to use the “Biplane” and “Gamma Knife” equipment they helped implement.
When a new hospital opened six miles from Valley in 2013, the plaintiffs obtained privileges there as well. In 2015, Valley granted a different group of neurosurgeons exclusive rights to use the “Biplane” and “Gamma Knife” equipment and to treat “unassigned” ER patients, thereby revoking plaintiffs’ privileges in those areas. Plaintiffs allege that grant of exclusive rights was not a valid administrative healthcare decision, but rather a form of retaliation for their perceived disloyalty in joining the new hospital. Valley alleges that the decision was valid in part because plaintiffs were diverting patients from Valley to the new hospital.
Plaintiffs filed a complaint against Valley. Following summary judgment motions, two claims reached the jury: (1) a breach of contract claim seeking money damages, in which plaintiffs alleged that Valley had breached its Medical Staff Bylaws (the Bylaws) by failing to provide plaintiffs with a hearing; and (2) plaintiffs’ breach of the implied covenant of good faith and fair dealing claim, for which they also sought money damages.
At trial, plaintiffs presented emails from Valley’s general counsel turned over by Valley during the discovery process. Prior to discovery, the parties agreed that any inadvertent disclosures could be “clawed back,” and Valley attempted to “claw back” the emails from counsel, asserting that they were protected by the attorney-client privilege. Plaintiffs’ counsel also stressed in summation that Valley had presented little evidence that the plaintiffs had diverted patients from Valley to the new hospital. Counsel made that argument despite knowing that materials plaintiffs had submitted in discovery showed sixty cases of patient transfers that were excluded from admission because Valley learned of them only after granting exclusive rights to the other neurosurgery group. The jury ultimately found no cause of action on the breach of contract claim based on the lack of a hearing, but it awarded damages based on the breach of implied covenant claim. Valley appealed, and the Appellate Division affirmed both the denial of summary judgment and the jury’s verdict.
NJ Supreme Court’s Decision in Comprehensive Neurosurgical, P.C. v. The Valley Hospital
The New Jersey Supreme Court reversed. While the Court found that the plaintiffs’ good faith and fair dealing claim properly survived summary judgment, it further held that the jury was not correctly charged or asked to rule on that claim.
“The trial judge failed to instruct the jury that the only underlying contract to which the implied covenant could attach to had to be one beyond the rights afforded by Valley’s Medical Staff Bylaws (the Bylaws),” Justice Fasciale wrote. “Adding to the significant uncertainty created by the jury charge and verdict sheet are the improper admission into evidence of the privileged emails and the improper remarks by plaintiffs’ attorney.”
The New Jersey Supreme Court first addressed Valley’s argument that it should have prevailed on the implied covenant claim at summary judgment. According to the Court, the only alleged source of mutual obligation to which the implied covenant of good faith and fair dealing could properly attach to is the implied-in-fact contract.
It went on to find that there was “sufficient evidence in the summary judgment record, when viewed in the light most favorable to plaintiffs, to support the notion that the parties had a special relationship — rooted in part in their course of dealings for more than a decade — that gave plaintiffs specific rights and obligations beyond the Bylaws.” Justice Fasciale also noted that whether parties’ interactions rise to the level of creating an implied contract is generally a question of fact best resolved by the jury.”
The New Jersey Supreme Court next turned to the jury instructions. Justice Fasciale wrote:
Although plaintiffs rightly note that duplicate instructions need not be given, finding the existence of a contract, which in this case had to be one beyond the Bylaws, was an essential element of plaintiffs’ breach of the implied covenant claim. By failing to instruct the jury on contract formation principles in connection to the only claim where that law was applicable, the judge only heightened the potential that the jurors would be led to believe that the Bylaws were a contract that could give rise to the covenant of good faith and fair dealing.
The New Jersey Supreme Court then addressed the additional errors made at trial. “[T]he uncertainty created by the jury charge was cumulatively exacerbated by two additional errors: the admission into evidence of privileged communications between [Valley’s general counsel] and Valley; and plaintiffs’ attorney’s improper summation comments,” Justice Fasciale wrote.
Finally, the New Jersey Supreme Court held that the trial errors were substantial and warranted a new trial. It further instructed that the jury must decide at retrial whether Valley breached an implied covenant of good faith and fair dealing premised on an underlying contract beyond the rights and obligations afforded by the Bylaws. “If plaintiffs sustain their burden on their implied covenant of good faith and fair dealing claim—without reference to privileged emails containing legal advice or suggestions about the absence of evidence regarding patient transfers—money damages are appropriate,” Justice Fasciale wrote.